Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Thursday 07/24/14

Fat-Cat Rents Most Vulnerable
It's those cut-throat, top-of-market leases bid up at cash corn's $6.89 season-average peak in 2012 that stand to see the biggest adjustments. Average rents drop much more slowly.[Read Full Blog Post]
Posted at 11:46AM CDT 07/24/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Wednesday 07/23/14

Why Rents May Be Slow to Tumble
Farmers stand to lose money on cash rented land in 2014 and 2015, if average lease rates don't adjust to new economics. On the other hand, landowners may be slow to budge.[Read Full Blog Post]
Posted at 10:59AM CDT 07/23/14 by Marcia Zarley Taylor | Post a Comment
Comments (3)
If I remember correctly, the last major correction ended with about 80% ,give or take, of the farm land in Iowa being in receivership.
Posted by Bonnie Dukowitz at 6:45PM CDT 07/22/14
Your right Bonnie and I don't think lenders are going to be to eager to carry someone losing money every year.Why would you feed a dead horse? I feel this is just the first of many low or no profit years to come.I am glad we have no debt at this time and can farm at these prices.
Posted by Raymond Simpkins at 8:01PM CDT 07/22/14
I had an interesting visit with a neighbor yesterday who farms about 5,000 acres. He has "pushed the pencil" and found that reducing his average rent of $360/acre to $320/acre would have similar consequences as adding 18 cents a bushel to his average corn price. The question then arrises - do you risk upsetting your landlord for 18 cents a bushel which might be obtained with good marketing. He's hoping that fertilizer prices will come back down from stratosphere levels as a result of reduced demand. Like my neighbor, I don't see how revenue insurance will keep us out of the red for 2015's crop. When will the ag press do a story on that, considering how gleefully they reported insurance "profits" in 2012!!
Posted by Curt Zingula at 7:51AM CDT 07/24/14
What Farm Widows Wished They Knew
Farm accidents can strike at any age. Good farm advisers and documentation of what couples own, farm lease terms and business roles after a partner's death can ease the grief.[Read Full Blog Post]
Posted at 10:58AM CDT 07/23/14 by Elizabeth Williams | 0 Comments | Post a Comment

Monday 07/21/14

Cash Rent Needs a Relief Valve
Dan, an Iowa farmer, summarized the problem in a 16-word Twitter post last month: "$4 cash corn. Same as when I started in 2010, but cash rents are $100 higher." He could have added: Something's gotta give. DTN's national average cash price index--a collection of cash bid data from almost 3,000 locations across the U.S.--slid to $3.52 last Friday.[Read Full Blog Post]
Posted at 4:40PM CDT 07/21/14 by Marcia Zarley Taylor | Post a Comment
Comments (4)
Don't drive in the yard driving a loaded up $50,000 pickup. Practice saying the word no - many times over. You may lose some ground, but if you're losing money, I guess I don't see why losing ground isn't the lesser of two evils. Get real good at telling your favorite seed guy no. There are many, many good choices out there. Figure out who wants to be Monte Hall. Also, show your land partner (a term I picked up on DTN) the money trail. Explain what a good sustainable fertilizer program costs. Explain what a good resistant weed avoiding chemical program costs. No land partner in their right mind wants their farm mined for nutrients or get resistant weeds started because their land partner (tenant) needed to skimp somewhere to make ends meet. Explain what your crop insurance costs, what it covers, and what it doesn't cover. Explain what the 2014 Farm Bill covers. Say the farm had $40/acre in Direct Payments under the old Farm Bill, and you're looking at less than that now; that should come off the rental value of the farm. Show what your take home pay is. Be prepared to be embarrassed or called out if it's too high. If you get to the end of a discussion like this and still can't see eye to eye, you're probably better off without that farm. - Jason Bode
Posted by Unknown at 9:10PM CDT 07/21/14
An acquaintance once quipped: When everyone else is running-You Walk! When everyone else is walking-You Run! Now if you were running when you should have been walking, Pay the price of the shifting load when the brakes lock up.
Posted by Bonnie Dukowitz at 5:23AM CDT 07/22/14
Don't worry. The large mega-farmers will be floated by the ag lenders, equipment manufacturers, seed, chemical and fertilizer dealers. If one or two of these guys go bad in a community it will have a ripple effect throughout. Not what the input providers want happening. They may be upside down on paper but they will be out there farming your land. SO GET YOUR RENT, CASH UPFRONT!
Posted by Mike Estadt at 9:05AM CDT 07/22/14
Mike I don't think that will happen.We have some large farms close to us that are struggling and I have seen they have changed who they do business with this spring.New seed company, fertilizer and some equipment.So that kinda tells me they have run the gament with the others.But yes, you are right when they go out they're going to take others with them.Like elderly landlords that won't get paid.
Posted by Raymond Simpkins at 11:07AM CDT 07/22/14

Friday 07/18/14

Spring Fling Lifts Land Markets
Midwest farmland values bounced back to life at mid-year, a new FCS analysis finds. But whether the rally survives lower prices remains a question.[Read Full Blog Post]
Posted at 5:06PM CDT 07/18/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 07/17/14

Why Succession Plans Stall
Young farmers often voice frustration at the pace they transition into an existing family business. Why do seniors keep a tight hand on the reins?[Read Full Blog Post]
Posted at 10:00AM CDT 07/17/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Friday 06/27/14

Pick Estate Advisers Who Make the Grade
How do you know if you've picked the right technical team to lead you through a business transition and estate plan?[Read Full Blog Post]
Posted at 1:22PM CDT 06/27/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Wednesday 06/18/14

Farmland: Trophy or Investment?
Timing when you buy or if you overpay can erode farmland's natural advantage over stocks.[Read Full Blog Post]
Posted at 2:03PM CDT 06/18/14 by Marcia Zarley Taylor | Post a Comment
Comments (2)
Question Marcia, Do the numbers being compared take into account all expenses of owning the land, taxes insurance, interest. etc.? Someone with $1,000.00 cash in 1950 was rather well off.
Posted by Bonnie Dukowitz at 8:08AM CDT 06/19/14
Have you ever ate paper? cant believe it tastes as good as a tomato
Posted by Mark Knobloch at 3:36PM CDT 06/23/14

Tuesday 06/17/14

Landowner Appeals Landmark CRP Case
Conservation Reserve Payment checks have been called "rent" for nearly 30 years, treated much like similar payments during the 1950s Soil Bank and free from self-employment taxes. But unless a 2013 Tax Court case is overturned by the 8th Circuit Court of Appeals later this year, non-farmers could owe whopping new 15.3% self-employment income tax on their contract proceeds.[Read Full Blog Post]
Posted at 2:32PM CDT 06/17/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Monday 06/16/14

Watch Sticker Prices on Farm Loans
Farm borrowers aren't like No. 2 Yellow Corn, so their interest rates can vary by risk, kind of collateral, size of loan or even the size of lender.[Read Full Blog Post]
Posted at 9:43AM CDT 06/16/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 06/12/14

Sec. 179 Depreciation in Limbo Again
Farm equipment sales have hit the skids this year, thanks largely to more modest farm income projections that could cut net revenues far below 2013 levels for crop producers. But uncertainty over the status of Sec. 179 depreciation rules for small business is compounding the problem.[Read Full Blog Post]
Posted at 9:58AM CDT 06/12/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 06/05/14

A 20% to 25% Land Crash? Really?
A skeptical reader asks for explanation of a regulator's farm real estate forecast.[Read Full Blog Post]
Posted at 2:06PM CDT 06/05/14 by Marcia Zarley Taylor | Post a Comment
Comments (16)
I see a correction coming.Be it 20-25% I don't know,but land value will have to follow what grain prices will support.Although I did just read in Progressive Farmer of land selling for 12,500 an acre to a investor and being leased back to the seller.I figured that guy can take the 5.5 million and pay his rent for 32 years and have a good retirement off the interest.So I don't think that invester hopes to see a 25% drop. Thats a 1.5 million lose.What did Cal mean crop prices have nothing to do with land ?
Posted by Raymond Simpkins at 8:51PM CDT 06/05/14
Folks: The land value equation has changed from the eighties. First, ethanol has turned corn into both an energy and food source. With 40% of the nation's corn crop going to ethanol production, that has permanently increased the demand for corn in the marketplace. Secondly, we had a president, Jimmie Carter, who put a ban on exportation to Russia. That hit the market very hard. Thirdly, the developing world is consuming more animal-source protein, requiring not only more grain for exportation, but more general demand across the globe, with much going to China. Finally, as long as we are in this zero-interest rate environment to lenders, people have very few options to their short term investments, outside of the stock market, which many people don't like nor trust. In the early eighties I purchased a 2.5 year CD that carried a 17.5% interest rate. Today, that same federally insured CD would carry a 1.0% rate. Also, if inflation picks up and interest rates start to rise, I want to own tangible assets, not financial paper. For me, I sleep much better knowing that my family owns farmland and paper promises. Now, I do worry about our government taking farmland away from people, but at that point, I would hope farmers would rebel.
Posted by tom vogel at 7:09AM CDT 06/06/14
One of my favorite Tweets this week was from an Iowa farmer who noted corn was $4--the same as when he started farming in 2010. Only problem is his rents are $100/acre higher. So it sounds like something has to give.
Posted by Marcia Taylor at 12:28PM CDT 06/06/14
This story doesn't focus enough on the seller's perspective. Recent increases in taxes on land sales mean that a seller could easily be robbed of 1/3 of their land for state and fed taxes. Sellers astute enough to resist being robbed will hold onto land (a desirable, tangible investment in the first place) and doing so will keep land off the market and support the price. But note that I'm not predicting land prices will go up.
Posted by Curt Zingula at 7:06AM CDT 06/08/14
When you think about profit margins in farming right now, based on the high priced land (and rent) there isn't a lot of wiggle room. If I am buying $12,500/A land, just accounting for principle, and a 20 year payback, my land cost is $625/A. Is that long term feasible? If I included a simple 5% interest cost on that that payment balloons to $1003 on an annual basis. If I factor in real estate taxes, you can probably add another $30 to $40/A easily. Looking at these numbers, you can clearly see that land cannot pay for itself in 1 lifetime. It takes additional land to do that. So in order for me to get this into a long term acceptable repayment range of say $250 to $300/A, I need to look to have either 75% of the purchase price in cash, or I need to mortgage 3 acres of land for 1 acre purchased or some combination of both. I personally believe a lot of the cash generated in the last 5 to 10 years has been spent already on either land, capital improvements, or machinery. I think until crop input costs start to moderate/drop, we will be 1 or 2 large crops away from potentially starting to see the start of the downhill slide. If you look back in the 80's, it only took the tailenders having to liquidate real estate that brought the whole system nearly to ruin. There are not enough available purchasers to soak up all the land if bottom 5% have to liquidate land. There will be too much surplus, which will start the downward spiral. How fast, long and deep will be known after it passes.
Posted by Pedro Sanchez at 10:00AM CDT 06/09/14
Curt I don't see that around here.There has been more land sold in the past 12 months than the last 10 years.If your going to sell, sell now.Land prices and taxes are not going to get better.Some investments have run their course.$700.00 land 30 years ago now selling for $10,000 don't see those kinds of returns sticking around much longer.
Posted by Raymond Simpkins at 10:03AM CDT 06/09/14
Cal, the price of crops DO have a bearing on the price of land. Historically, it has been the single most important factor affecting land prices over a period of time. You may not have noticed an effect of $4.00 corn (harvest price) corn on current land prices yet in your area because we are still in the very early stages of this change of the agricultural economic cycle. In the last break down of land prices, the effect of Pres. Carter's grain embargo in 1979 did not definitively show up in the land prices (in my area) until the fall harvest of 1981. It will take a year or two for farmers' cash reserves/flow to get dwindled down from the relatively lucrative/recent grain prices (of only this past year).
Posted by Unknown at 10:11PM CDT 06/09/14
Ray - Wow, that's way more land selling than what I've seen in Eastern Iowa! Where is "here"? Do those sellers understand that they've just accepted a 30% loss in value after taxes? And their new C.D.s (assuming they're not paying off mortgages as others suggest) won't offer the return of land rent. Other investments are risky too. Still, there are messy estates to settle, and that will always offer land to the market at any value!
Posted by Curt Zingula at 7:00AM CDT 06/10/14
Curt we live in southern Michigan where there has been a huge turnover of land.These sellers are mostly retired people with no mortgages.You are going to pay taxes on that money someday, Today 30%, 10 years down the road maybe 40%.Rents in this area are not all that high, you would be looking at rents in the $300-$350 range to compare to other investments and rents are not close to that.Dutch dairy farmers here will pay whatever it takes to buy land.Im not selling, but Im not buying at these prices either.
Posted by Raymond Simpkins at 8:52AM CDT 06/10/14
I think land is poised for a large correction. Unfortunately for me, I've thought that for 5 years now :)
Posted by Unknown at 12:23PM CDT 06/10/14
Ray, You're right about taxes going up - far left has made popular a book by an author proposing 80% tax for the top bracket! However, I'm not sure your "mostly retired" have considered stepped-up basis which will allow heirs to avoid capital gains if they don't see the tangible value you and I see for holding land. For most of the non-farming land owners in my area, land rent ($300 or more for good land) is supplemental to their own income or retirement benefits and they're not selling. Anyway, my point is basic Econ 101 - price discovery is a function of demand AND supply. If you're right and the land supply is surplus (like all the corn predictions) the value can only go down.
Posted by Curt Zingula at 7:07AM CDT 06/11/14
Curt, you touched on a topic (as well as Ray) about surplus land for sale/turning over. How much land do you think would have to hit the market in a region to produce a surplus? I wonder if this has ever been researched. With land running in the $10k+ acre range, my guess is it wouldn't take long to start to see saturation (2 to 3 land sales a month??)
Posted by Pedro Sanchez at 8:22AM CDT 06/11/14
I am not convinced that a large correction is coming. Being very close to the ag real estate market here in Nebraska, I have way more Buyers than I have Sellers. That plays into higher prices sticking around. If it is an Investment Buyer, they are a bit more conservative and are beating the bushes for good deals. I am seeing Investment Owners beginning to liquidate to take advantage of increased value...but they are not doing it in a wholesale way. And they are wanting to 1031 right into another land purchase. Conversely, the area farmers are scooping up almost any property when it becomes available for sale or lease and will hold onto it for the long term. Many have adequate financial reserves to not bat an eye at the price as they can leverage the cost across their entire portfolio. Others may sell some land and rent back freeing up cash to purchase a different farm. I do believe the marginal farms...those that have issues such as less desirable soils, power lines, canals, roads, etc. on them will not continue to bring top dollar. Nor should they. Now, if Capital Gains laws ever revert back to what they were a few years ago...you would see older landowners more willing to sell and that could potentially push the prices down some. Do I think that prices will drop 20-25%? I will know more in about 5 months...but if today is the barometer...my answer would have to be a definite NO.
Posted by Mike McCann at 8:25AM CDT 06/11/14
If the FED slows the printing presses, regardless of debt to asset ratios and rent rates there may well be a drop in $. Corn, milk and apples might not be a major factor in the per acre $ value. The Stock Markets, as well as other factors , here and abroad, are all part of the big picture.
Posted by Bonnie Dukowitz at 5:12AM CDT 06/12/14
Perhaps Marcia could answer our questions about seller motivation with a story based on Realtor responses. It appears that there are significant regional differences. BTW, I had to groan at Mike's inclusion of power lines lowering land values because I'm in the path of RICL's proposed wind transmission line. Those jokers want to commandere my field driveway to build their 14 story high line across the the entire section and not offer me a single dime more than my neighbors. Wind energy transmission to far away metro areas will lower a lot of land values!
Posted by Curt Zingula at 7:19AM CDT 06/12/14
Thanks for the assignment, Curt! I'm on the case. But it seems to me we see more motivated sellers among farm heirs and estates than retired farmers who want to cash out. Capital gains on farmland--especially land owned for decades--still provide retirees major tax reasons to keep a grip on land until death, when all lifetime gains are forgiven. What I am noticing is that large farmland investment firms are having success with sale-leasebacks to older farmers with no successors. The owners think now might be the time to pick their price, but retain a leaseback on their land for 5-7 years. Anybody in this camp?
Posted by Marcia Taylor at 10:11AM CDT 06/12/14

Monday 05/19/14

Contrarians Counter Ag's Doomsday Decade
Official government forecasts understate the potential for commodity markets to reignite, contrarians at the Global AgInvesting conference argued.[Read Full Blog Post]
Posted at 4:03PM CDT 05/19/14 by Marcia Zarley Taylor | Post a Comment
Comments (10)
Crop Insurance = Welfare for the wealthy. As long as the taxpayer is asleep at the wheel big ag will roll. Thank U President O!
Posted by Unknown at 8:15PM CDT 05/19/14
"Growers recognized the benefit of insurance"? Government mandates in the banking industry might be a more correct statement.
Posted by Bonnie Dukowitz at 5:16AM CDT 05/20/14
Good for your Bonnie Dukowitz. I concur completely!!
Posted by Kent Wilke5 at 6:49AM CDT 05/20/14
Posted by Unknown at 8:34PM CDT 05/22/14
Concur with what?
Posted by Don Thompson at 1:09PM CDT 05/23/14
Take a look, Don, at who or what, has much interest of title ownership of the insurance companies. Then expand the analytical thought process a bit.
Posted by Bonnie Dukowitz at 9:53PM CDT 05/23/14
Again, huh?
Posted by Unknown at 8:19PM CDT 05/26/14
One thing you all over look is that in 2012 corn was 7.00 so crop insurance payed big. But what happens when corn is sub 4.00.85% of 4.00 corn protection will not cut it.Even 200 bu. corn at 3.40 won't even cover cost let alone the insurance premium on top of inputs
Posted by Raymond Simpkins at 9:08PM CDT 05/26/14
You are correct Raymond. In many situations the covered amount might be almost enough to pay the bank. The bank might also be the owner of the insurance company. Kind of a win-win deal for them. I wonder if anyone obtains a crop operating loan w/o crop insurance. There is much more to the Agriculture Act than crop ins.
Posted by Bonnie Dukowitz at 5:59AM CDT 05/27/14
Ray, spring price set the floor for the year, but your point still stands. There is little protection for grain farmers this year. The biggest driver of survival going forward will be land costs, either owned or rented. Think about the PP acres and how bad that would be for the bottom lines, 60% of the guaranty. Bonnie, the only bank that I know that owns an insurance company is Wells Fargo. They own RCIS through a subsidiary, but there could be others. As far as getting an operating LOC without crop insurance, well I suppose that it is possible, but with margins so tight, I don't know many bankers who would do it. There is too much at risk. How many farmers could stomach a complete crop failure? With the high input costs, machinery, building, and land debt or rental prices, you might be able to stomach 1 year of loss. 2 years and you would be out of business. Even with a CAT policy it wouldn't be pretty. For as cheap as crop insurance is priced, to not take it out, you are not balancing the risk/reward very well.
Posted by Pedro Sanchez at 9:45AM CDT 05/28/14

Friday 05/09/14

Avoid the Marketing Blame Game
Joining me today to discuss another topic on family values is Lance Woodbury, DTN and The Progressive Farmer's family business columnist who is based in Garden City, Kan. Lance trained as a professional mediator and has more than 20 years experience counseling small business owners on family conflicts, succession and transition issues.[Read Full Blog Post]
Posted at 9:08AM CDT 05/09/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 05/08/14

If You Farm, There's No Place Like Home
Starting 15 years ago, I took four trips and about four dozen farm leaders onvisits to the Brazilian frontier. Outposts were so remote, we chartered our own planes to criss-cross a region the size of our 12 Midwestern corn states.[Read Full Blog Post]
Posted at 3:04PM CDT 05/08/14 by Marcia Zarley Taylor | Post a Comment
Comments (2)
Marcia: Thank you for the superb information. I agree with you on the notion that the U.S. infrastructure and political stability are a real blessing to us. However, I could see a scenario in which food prices reach such a high level that an over-zealous government could start to confiscate land "for the common good." I know at first blush, this may seem unthinkable. However, look at what has happened to some of the Western lands. I hope and pray we keep our traditional representative republic with private property rights, but I am a bit of a skeptic given what I have seen in recent years.
Posted by tom vogel at 9:34PM CDT 05/11/14
We all know Marcia how privileged a select group of growers are that are targeted with massive government crony capitalistic benefits. What some people like you Marcia do not comprehend is how many Americans are financially harmed by big government schemes such as federal crop insurance and corn ethanol mandates that work to raise the costs of growing food and the costs of buying food.
Posted by T Kuster at 1:59PM CDT 05/12/14
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Recent Blog Posts
  • Fat-Cat Rents Most Vulnerable
  • Why Rents May Be Slow to Tumble
  • What Farm Widows Wished They Knew
  • Cash Rent Needs a Relief Valve
  • Spring Fling Lifts Land Markets
  • Why Succession Plans Stall
  • Pick Estate Advisers Who Make the Grade
  • Farmland: Trophy or Investment?
  • Landowner Appeals Landmark CRP Case
  • Watch Sticker Prices on Farm Loans
  • Sec. 179 Depreciation in Limbo Again
  • A 20% to 25% Land Crash? Really?
  • Contrarians Counter Ag's Doomsday Decade
  • Avoid the Marketing Blame Game
  • If You Farm, There's No Place Like Home
  • Not 1979 All Over Again
  • The Great ARC or PLC Debate
  • Farm Incomes Bounce from Feast to Famine
  • Keep Family Legends Alive
  • Russian Grain Embargo in Retrospect